By Luke Baker
Greece took over the presidency of the European Union on Wednesday and chose the moment to deliver a staunch defence of its efforts to recover from six years of recession and two bailouts that have cost it more than 200 billion euros.
Meeting Brussels-based journalists as Athens took on what is largely a ceremonial EU role for the next six months, Foreign Minister Evangelos Venizelos and Finance Minister Yannis Stournaras were quick to highlight nascent signs of recovery, with forecasts for the economy to grow marginally this year.
Prime Minister Antonis Samaras delivered a similar message, while all of them trod carefully around the possibility that Greece will need another loan or else have to write off or renegotiate a portion of its vast debts later this year.
Since it emerged in late 2009 that Greece had fiddled its statistics, the country has received two rescues totalling 240 billion euros – more than its annual output – from the EU and International Monetary Fund, and flirted with leaving the euro.
To try to put the economy back on a stable footing, the government has slashed spending, cut public sector salaries and pensions, raised taxes and begun to sell off state assets, enforcing a dramatic and deeply unpopular internal devaluation.
“No other country during peacetime has achieved as much as Greece has achieved since 2009,” Stournaras said when asked what specific steps he had taken to make the economy competitive again after six years of contraction.
“People should this year begin to feel the impact in their pockets and in their everyday lives.”
Asked if it was not essential for Greece to write off some portion of the money loaned to it by the EU and IMF to have any chance at a sustained recovery, both Venizelos and Stournaras demurred, while Samaras played up the signs of improvement.
“Greece, after huge sacrifices, is able to say that it is leaving behind the crisis,” he told a joint news conference with European Commission President Jose Manuel Barroso.
Ahead of the arrival of Barroso and the rest of the members of the European Commission, police and paramilitary units sealed off the centre of Athens and demonstrations were banned to prevent any disruptios to the launch of the presidency.
Because of Greece’s enormous debt and low prospect of being able to pay them back in the next 30 years, the expectation is that some form of renegotiation will be required later this year, although it is a subject Greece is reluctant to broach.
Venizelos, a combative former finance minister and Socialist party leader, said no request for a ‘haircut’ or write down in the value of its loans had been made and said he was only interested in how to make the outstanding debt more manageable.
“We want a serious technical discussion about how to make the debt sustainable in the long term,” he said, adding that to this point none of the loans had cost European taxpayers a cent because all obligations had been paid in full.
Stournaras said there was room to lower the interest rates on the loans still further – even though they are barely above the cost of financing – as well as making changes to the pay-back schedule and using EU development funds in more imaginative ways to keep Greece solvent and on a recovery path.
“A reduction in the interest rate and a pushing back of the amortisation schedule is more effective from the point of view of the financial markets,” he said, dismissing suggestions that what Greece ultimately needed was debt relief.
Any new loan would likely come with further strict conditions on spending cuts and tax increases that Greece is determined to avoid, not least to avert further social unrest.
“There can be no more fiscal conditionality,” the finance minister said, highlighting the dire impact earlier rounds of spending cuts, state salary reductions and tax increases.
“It’s quite illogical to impose any more conditionality. It’s totally self-defeating at this stage.”
Over the past four years, Greece has forced through a 22 per cent reduction in the minimum wage, cut average public sector salaries by nearly a quarter and slashed some pensions by more than 40 per cent, delivering a deep “internal devaluation”.
While the economy has contracted by almost 25 pe rcent from its peak, the current account deficit has been erased, exports have picked up and growth of 0.6 per cent is scheduled this year. Unemployment has stabilised, albeit at a painful 27 per cent.
In a sign of increased confidence, Stournaras said it was likely Athens would offer a five-year bond in the second half of 2014, with the funds raised via an investor roadshow.
While that would mark a significant step forwards, it would still fall a long way short of full market access – and socially and politically Greece remains deeply troubled.
Samaras’ coalition government is barely holding on to a three-seat majority in parliament. He dropped plans to increase healthcare costs this week and will raise taxes on cigarettes instead, largely to avoid the threat of a parliamentary revolt.
The major event during Greece’s presidency will be the European Parliament elections in May, when a surge in support for extreme-left, -right and anti-EU parties is expected.
In Greece, the left-wing Syriza group is forecast to top the polls, potentially disrupting Samaras’ delicate coalition.